“I believe that practically all the surplus that will be generated by a higher price will also be reflected in gasoline costs,” Yorio said. “Then literally the surplus is going to have to be used to fund additional incentives,” he added.
Mexican motorists have been protected from sharp increases in fuel prices in recent weeks due to the subsidy policy advocated by the government of President Andrés Manuel López Obrador, who has long promised to isolate consumers from the harsh price increases at gas stations.
The Bank of Mexico (Banxico) has raised the key interest rate in seven consecutive monetary policy meetings to try to curb inflation, which doubles the entity’s target of 3% +/- one percentage point.
“What we have calculated is that in a period of four months this measure avoids two points of inflation. That is, if in these four months the more or less accumulated inflation was around 7 (percent), this prevented it from rising to 9 (percent),” he explained.
Mexico’s government is the latest to try to cushion the impact of rising energy prices following Russia’s invasion of Ukraine and is one of the few that has the luxury of additional oil revenues to help finance those props.
Governments from Brazil to France are considering raising subsidies or cutting taxes to shield consumers from the financial pressure of rising fuel prices, reflecting the economic and political risks they see in the current energy escalation.
Yorio said investor sentiment on Latin America, and Mexico in particular, has improved amid the fallout from the invasion, as the region is seen as remote from the conflict.
On a recent tour of New York and Europe, investors expressed interest in buying more Mexican debt, but Yorio said Mexico’s government had no plans to issue more dollar- or euro-denominated bonds this year.
However, he said, Mexico is likely to issue debt in Japan for refinancing purposes.
“At some point in the year we’re probably going to try to go to the Samurai market because we haven’t been in two years and also this year there are yen write-downs,” Yorio said. “So it makes sense to refinance in this market,” he added.
